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Birthday Wishes for the Charitable Tax Deduction + More

by Jennifer Gray

It’s the 100th Anniversary of the Federal Charitable Income Tax Deduction. What do we wish for as a birthday present? Expansion of course. Let’s give everyone the ability to enjoy the benefit of the charitable giving income tax deduction.

As tax reform buzz continues, a recent report, Tax Policy and Charitable Giving Results, from Indiana University’s Lilly Family School of Philanthropy (May 2017)  examined the impact of various tax reform proposals on charitable giving. The bad news is that the reforms that have some momentum behind them would negatively impact giving. The good news is that expanding the deduction would not only offset the negative impact but would cause giving to increase overall.

Word on the Street

We’re hearing that there’s generally strong bipartisan support for charitable giving in Congress. However, there is also momentum towards simplifying the tax system, decreasing the rate for the top tax bracket, and increasing the standard deduction.

Impacts of Increasing the Standard Deduction

According to the report, increasing the standard deduction:

  • Preserves the deduction but only for 5% of taxpayers.
  • Far fewer taxpayers would continue to itemize.
  • Charitable giving would decrease by $11.0 billion (-3.9 %) and tax revenue by $64.2 billion (-2.3%).

Decreasing the Top Marginal Tax Rate

Decreases charitable giving by $2.1 billion (-.8 %) and tax revenue by $24.1 billion (-.9%).

Combined Impacts

Should both proposals (increasing the standard deduction and decreasing the top rate) succeed, the impacts are estimated to:

  • Decrease charitable giving by $13.1 billion (-4.6 %) and tax revenue by $88.2 billion (-3.2%).

Expansion of Itemized Deduction to Non-itemizers

If the itemized deduction is expanded to be available to all and not limited to itemizers, the impacts would be:

  • Increase charitable giving by $12.2 billion (4.3%) and decrease tax revenue by $13.1 billion (-.5%).

Combined scenarios

  • If the standard deduction is increased and the charitable deduction is expanded to all, charitable giving would increase by $7.0 billion (2.5 %) and decrease tax revenue by $82.2 billion (-2.9 %).
  • Should the standard deduction increase, the marginal tax rate decrease and the charitable deduction be expanded to all, “the positive effects of extending the charitable deduction to non-itemizers more than offsets the negative effects of the other two policy changes on giving.”
  • The combined effect of all three would increase giving by $4.8 billion (1.7 %) and decrease tax revenue by $106.1 billion (-3.8 %).

Additional Areas of Concern

  • Tax reform and the budget are on separate parallel tracks. The decrease in charitable giving would be in addition to potential cuts in funding to nonprofits and the work they both provide and support.
  • In general, proponents of tax reform expect nonprofits to fill the gap caused by the proposed spending cuts.
  • The estate tax will likely also be eliminated. This will likely negatively impact the amount of bequests to nonprofits.
  • Many are very concerned with the efforts to repeal and weaken the Johnson Amendment. There is fear that financial contributions will go to political campaigns instead of important nonprofit work. To learn more, go to www.givevoice.org
  • Issues surrounding the census are also very important. The head of the Census Bureau recently resigned, its budget has been cut and it is facing additional cuts. Go here to learn more.

How to Get Active

The Forum of Regional Associations of Grantmakers and their partners are supporting a campaign around tax reform called www.Giving100.org. Go here for the Forum’s position statement.

 

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